Global Economics

GM, Chrysler Bankruptcy to Hurt TCS Most Among India Companies


The ripple effect from the U.S. auto crisis will reach India, hitting Tata Consultancy and auto-parts vendors particularly hard

The grave financial crisis at US automobile companies General Motors (GM) and Chrysler has put at risk deals worth nearly $1 billion (Rs 5,000 crore) annually for Indian auto parts suppliers and some of the country's top software firms.

Tata Consultancy Services (TCS), India's largest software exporter, faces the biggest impact among IT companies, while vendors of auto components will be particularly affected if GM files for bankruptcy, analysts and executives from the two industries said.

On Sunday, the US government gave GM 60 days to come up with a new plan to cut debt and prevent bankruptcy. Chrysler has been ordered to finalise a partnership with Italian carmaker Fiat within 30 days.

A Delhi-based auto parts supplier to GM said there has already been some reduction in orders from the American firm. "We are worried and closely watching the developments in the US to gauge the impact. The decline in auto sales in the US has already hit the order books of Indian suppliers," he said.

A GM bankruptcy will have a crippling effect as production lines will be reduced and a number of models scrapped. "Even if the firm doesn't file for Chapter 11 (bankruptcy), it's likely that payments will be delayed. We have already reduced our supplies to GM," an executive at a leading auto component company said.

GM and Chrysler's woes-the two have been struggling in recent years-have also put their new IT outsourcing projects in a limbo.

"Several new outsourcing decisions are pending at GM and Chrysler because of the uncertainty about their future and the anti-offshoring sentiment that is being voiced by many political lobbyists," said a person familiar with outsourcing decisions at these auto companies.

An outsourcing expert said GM and Chrysler award software projects worth $300-350 million annually to Indian vendors such as TCS, Wipro and Satyam. Wipro has a five-year, $300-million contract with GM that was signed in 2006. And TCS signed a $150-million with Chrysler last year to maintain software applications.

Any reduction in outsourcing by the US auto companies will hurt TCS the most. The Indian IT firm counts GM among its top 10 clients and also provides services to Chrysler and Japanese automaker Nissan. TCS had to face write-offs when its client Nortel Networks filed for bankruptcy protection earlier this year.

While a TCS spokesman said the company does not comment on specific clients, Wipro said it was in the silent period leading up to the announcement of its Q4 earnings. In an email response, a Satyam spokeswoman said, "We would not like to comment on this issue as we are still assessing the impact. As of now, our existing relationship with GM continues unchanged."

A GM bankruptcy could hit the revenues of large Indian IT firms by about 2%, said Anand Rathi Securities institutional equities director Tarun Sisodia. However, he added that it was unlikely that the US government would let these companies fail. "The auto majors' existing contracts with Indian vendors are likely to continue but renewals may come under pressure," Mr Sisodia said.

SBICAP Securities research head Anil Advani said there could be a negative impact in the short term for Indian IT firms but outsourcing will pick up as the American companies look to cut costs.

(With inputs from Chanchal Pal Chauhan in New Delhi)


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